European Court Of Justice Provides Guidance Regarding Potential Liability Of Cartel Members In EU Member States For Sales By Non-Cartel Participants

Last week, the EU's highest court, the European Court of Justice (ECJ), held that Member State laws may not categorically prohibit consumers from recovering from cartel members damages attributable to purchases from non-cartel participants that—acting independently—were able to charge inflated prices as a result of market-wide price effects from cartel behavior. Much remains to be determined in the national courts, and plaintiffs will continue to face significant barriers to recovery based on this theory. In certain circumstances, however, companies alleged to have engaged in cartels could face increased potential civil exposure in Europe. Particularly in light of the EU's upcoming directive on competition damages actions (expected this fall at the latest), which will provide substantial guidance regarding private actions for alleged competition violations, the decision is another sign that Europe may become a hotbed for antitrust litigation. Umbrella Theory of Liability: The U.S. Experience Although the issue is relatively new in Europe, in the United States private plaintiffs purchasing from non-cartel members have on occasion sought to hold cartelists liable on theories that by raising market-wide prices, the collusion created a pricing "umbrella," enabling non-cartel members to independently price higher than they would have but for the cartel. These theories have found little success in U.S. courts. In Mid-West Paper Products Co. v. Continental Group, Inc., 596 F.2d 573, 584 (3d Cir. 1979), for example, the plaintiff claimed to have been injured by purchasing paper bags from rivals of participants in an industry cartel that were allegedly able to charge artificially inflated prices as a result of the cartel's umbrella effect. In rejecting this damage theory, the court relied heavily on Illinois Brick v. Illinois, 431 US 720 (1977), in which the U.S. Supreme Court held that federal antitrust law does not provide a damages cause of action for indirect purchaser claims based on overcharges imposed on direct purchasers that were "passed on" to them. Among several concerns about allowing indirect purchaser claims, the Supreme Court cited the "massive evidence and complicated theories" inherent in "attempt[ing] to trace the effect of the overcharge through each step in the distribution chain from the direct purchaser to the ultimate consumer." Id. at 741. The Third Circuit analogized the umbrella theory to indirect purchaser claims because...